Over the past 12 months, consumer prices have increased very little. The latest Consumer Price Index (September) shows 0.0% yearly inflation and only 1.9% core yearly inflation. That means no cost-of-living adjustment for Social Security, and very few IRS adjustments to retirement plan contribution limits.1
Roth IRA & traditional IRA contribution limits stay the same for
2016. Those 49 and younger in 2016 can contribute up to
$5,500 to their IRAs, while those 50 and older will be able to contribute
$6,500.2
401(k), 403(b), 457 & TSP annual contribution limits are also
unchanged. Savers will be able to defer up to $18,000 into
these plans
in 2016 with an additional catch-up contribution of up to $6,000 permitted for
those 50 or older.3
SIMPLE
IRAs? No COLA for those accounts either. The base contribution limit for a SIMPLE IRA
stays at $12,500 next year, the
catch-up contribution limit at $3,000.2
The same
goes for SEP-IRAs & Solo 401(k)s. Small
business owners have a maximum deferral amount of $53,000 for 2016. As for the
compensation limit factored into the savings calculation, that limit will
remain at $265,000. The compensation threshold for an employee to be included
in a SEP plan stays at $600 (i.e., that worker has to receive $600 or more in
compensation from your business in 2016).2,3
The phase-out range for Roth IRA contributions has been adjusted a
bit. In 2016, you will be unable to make a Roth IRA
contribution if your AGI exceeds $194,000 as a married couple filing jointly,
or $132,000 should you be a single filer or head of household. Those figures
are $1,000 higher than in 2015. Joint filers with AGI of $184,001-194,000 and singles and heads of household with AGI of
$117,001-132,000 will be able to make a partial rather than full Roth IRA
contribution next year. If you really want a Roth IRA but your AGI is too high,
you can always open a traditional IRA and then convert it to a Roth.2
As for deducting
regular IRA contributions, one phase-out range change has been made. The change is slight. If you
contribute to a traditional IRA and your employer doesn’t sponsor a retirement
plan, yet your spouse contributes to a workplace retirement plan, the AGI
phase-out on deductions of traditional IRA contributions strikes when your
combined AGI ranges from $184,001-194,000. That is a $1,000 increase from the
2015 phase-out range.2
If you are a single filer or file as a
head of household contributing to a traditional IRA and you are also covered by
a workplace retirement plan, the AGI phase-out range for you remains at $61,001-71,000. If you file jointly, contribute to a
traditional IRA and are also covered by a
workplace retirement plan, your AGI phase-out range is the same in 2016 –
$98,001-118,000. Above the high end of those phase-out ranges, you can’t claim
a deduction for traditional IRA contributions.2
If you are married, filing separately and covered by a workplace
retirement plan, the phase-out range on deductions of
traditional IRA contributions is $0-$10,000 (this never gets a COLA).2
AGI limits
for the Saver’s Credit will rise slightly. Americans saving for retirement on modest
incomes will be eligible for the credit next year if their AGI falls underneath
certain thresholds: single filers and marrieds filing separately, adjusted
gross income of $30,750 or less; heads of
household, AGI of $46,125 or less; joint filers, $61,500 or less.2
ESOP dollar amounts are unchanged next
year. The dollar amount used to
figure out the maximum account balance in an ESOP subject to a 5-year
distribution period will still be $1,070,000 in 2016, while the dollar amount
used to determine the lengthening of the 5‑year distribution period will remain at $210,000.3
Contribution limits for profit-sharing
plans rise as per limits for 401(k)s. A
participant in such a plan is looking at a 2016 elective deferral limit of
$18,000 ($24,000 if she or he is old enough to make catch-up contributions).
The yearly compensation limit on such plans stays at $265,000.4
Lastly, maximum yearly benefits for a defined benefit plan will remain
at $210,000. The dollar limitation defining key employees
within a top-heavy plan again stays at $170,000.3
This material was prepared by MarketingPro,
Inc., and does not necessarily represent the views of the presenting party, nor
their affiliates. This information has been derived from sources believed to be
accurate. Please note - investing involves risk, and past performance is no
guarantee of future results. The publisher is not engaged in rendering legal,
accounting or other professional services. If assistance is needed, the reader
is advised to engage the services of a competent professional. This information
should not be construed as investment, tax or legal advice and may not be
relied on for the purpose of avoiding any Federal tax penalty. This is neither
a solicitation nor recommendation to purchase or sell any investment or
insurance product or service, and should not be relied upon as such. All
indices are unmanaged and are not illustrative of any particular investment.
Citations.
1 - usatoday.com/story/money/2015/10/15/cpi-for-september/73957022/
[10/15/15]
2 - forbes.com/sites/ashleaebeling/2015/10/21/irs-announces-2016-retirement-plans-contribution-limits-for-401ks-and-more/
[10/21/15]
3 - irs.gov/uac/Newsroom/IRS-Announces-2016-Pension-Plan-Limitations%3B-401%28k%29-Contribution-Limit-Remains-Unchanged-at-$18,000-for-2016
[10/21/15]
4 - shrm.org/hrdisciplines/benefits/articles/pages/2016-irs-401k-contribution-limits.aspx
[10/22/15]
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